Yonhap News.
A sharp drop in Korea’s stock market has dealt a direct blow to single-stock leveraged exchange-traded funds (ETFs) tracking Samsung Electronics (005930.KS) and SK hynix (000660.KS). Retail investors poured into these products after their listing late last month, but the share prices of the major chipmakers fell sharply for two consecutive sessions, dragging the products down around 25%.
Leveraged ETFs are structured to track twice the daily return, raising concerns that losses could expand through a “negative compounding effect” in volatile markets.
According to the Korea Exchange (KRX), as of 2:08 p.m. Monday, the 14 long single-stock leveraged ETFs tracking Samsung Electronics and SK hynix listed in Korea fell an average of 26% from their closing prices last Friday.
The decline reflects the second straight day of steep losses in the underlying assets, Samsung Electronics and SK hynix. Samsung Electronics traded at 302,500 won as of 2:11 p.m., 13.94% lower than its Friday closing price of 351,500 won. SK hynix stood at 1.971 million won at the same time, down 14.23% from its Friday close of 2.298 million won.
As a result, the declines in the single-stock leveraged ETFs widened. The KODEX Samsung Electronics Single Stock Leverage fell 25.49% from 29,465 won Friday to 21,955 won on the day. The TIGER Samsung Electronics Single Stock Leverage dropped 25.86% over the same period from 27,260 won to 20,210 won. The ACE Samsung Electronics Single Stock Leverage also fell 26.34% from 27,510 won to 20,265 won.
SK hynix products also plunged across the board. The KODEX SK hynix Single Stock Leverage fell 26.16% from 29,055 won to 21,455 won. The TIGER SK hynix Single Stock Leverage dropped 26.38% from 29,055 won to 21,390 won. The 1Q SK hynix Futures Single Stock Leverage plunged 27.90% from 27,710 won to 19,980 won, the largest decline.
As the price swings in single-stock leveraged ETFs intensified, concerns over retail investor losses are growing. Retail investors net bought major products from the launch of single-stock leverage products on May 27 through the previous trading session on Friday. Retail investors bought the KODEX SK hynix Single Stock Leverage for seven consecutive trading sessions. Their net purchases totaled 2.0425 trillion won from May 27 to June 5. Retail net purchases of the TIGER SK hynix Single Stock Leverage also reached 1.9739 trillion won over the same period.
Because leveraged products track daily returns, holding them for more than two days can produce results that differ from simply doubling the cumulative return of the underlying asset. In particular, in markets with repeated sharp swings, the so-called “negative compounding effect” enlarges losses. As of June 5, the total net asset value of 16 single-stock leveraged and inverse ETFs had already fallen 10.3% from the previous trading session.
The KOSPI plunged more than 8% in early trading, slipping below the 8,000 level, before trimming its loss to around 5% in the afternoon. Major semiconductor stocks also partially recovered from their intraday lows, but the burden on single-stock leverage investors remains heavy. “Even if you get the direction right with a leveraged ETF, the expected and actual returns can diverge when volatility rises,” an official in the financial investment industry said.
